In re Paramount Gold & Silver Corp. Stockholders Litigation
CA 10499-CB
| Del. Ch. | Apr 13, 2017Background
- Paramount Gold & Silver (Paramount) owned two projects: San Miguel (Mexico) and Sleeper (Nevada). Coeur proposed a deal that spun off the Nevada assets into SpinCo and merged Paramount (holding San Miguel) into Coeur.
- Transaction structure: stock-for-stock merger (Paramount stockholders received 0.2016 Coeur shares and ~95% of SpinCo) and, concurrently, a royalty agreement granting Coeur Mexicana a perpetual 0.7% NSR on San Miguel for $5.25 million.
- Merger Agreement included a $5 million termination fee payable if Paramount later closed an alternative transaction within 12 months after termination.
- Plaintiffs (former Paramount stockholders) sued the Paramount directors for breach of fiduciary duty, alleging the royalty plus termination fee operated as unreasonable deal-protection that coerced the stockholder vote and that disclosures were incomplete; the merger was approved by a majority of disinterested stockholders and closed April 17, 2015.
- Court took limited discovery, considered the Registration Statement and board minutes incorporated into the complaint, and defendants moved to dismiss for failure to state a claim.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Unocal enhanced scrutiny applies because deal protections were unreasonable | Royalty + $5M termination fee combined to create a de facto second termination fee (~$10.25M) that precluded competing bids | Royalty did not give Coeur a veto; termination fee alone was reasonable and royalty did not block alternative transactions | Rejected plaintiff: royalty did not function as a deal-protection device; Unocal review not triggered on that basis |
| Whether the stockholder vote was fully informed (Corwin cleansing) | Disclosures omitted/misstated material information (analyst targets, Cantor Fitzgerald’s role, Scotia fee negotiation) | Registration Statement fairly summarized advisor analyses and disclosed Scotia’s fee magnitude and contingent nature; other details immaterial or waived | Rejected plaintiff: stockholder vote was fully informed; Corwin cleansing applies |
| Whether Corwin’s application is limited by Santa Fe (i.e., could stockholder vote cleanse defensive measures) | Santa Fe suggests a fully informed vote may not preclude review of defensive measures | Corwin controls; but court need not resolve tension because challenged provisions here were not preclusive | Court did not need to reconcile Corwin and Santa Fe; found no preclusive device regardless |
| Whether plaintiffs pled non-exculpated bad-faith / loyalty claims (despite §102(b)(7) exculpation) | Alleged rushed process, failure to run auction/go-shop, inadequate price, flawed fairness opinion demonstrate bad faith | Allegations are conclusory or amount to mere disagreement with process/advice; price included a ~19.8% premium; no non-exculpated claim pleaded | Rejected plaintiff: allegations insufficient to plead bad faith; claim barred by business judgment rule/§102(b)(7) exculpation |
Key Cases Cited
- Corwin v. KKR Fin. Hldgs. LLC, 125 A.3d 304 (Del. 2015) (fully informed, uncoerced disinterested stockholder vote invokes business judgment rule)
- In re Santa Fe Pacific Corp. Shareholder Litigation, 669 A.2d 59 (Del. 1995) (stockholder approval may not cleanse certain defensive measures adopted pre-vote)
- Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946 (Del. 1985) (board defensive measures are subject to enhanced scrutiny; must not be preclusive or coercive)
- Omnicare, Inc. v. NCS Healthcare, Inc., 818 A.2d 914 (Del. 2003) (Unocal/Unocal-derived principles and review of deal-protection devices)
- Singh v. Attenborough, 137 A.3d 151 (Del. 2016) (when Corwin applies, dismissal is typical; waste exception rarely succeeds)